The Six-Million Barrel Craft Brewery

Last week, Abby Goodnough reported that Boston Beer is attempting to redefine "craft brewery" to avoid getting hit with a tiny tax hike. The federal definition puts a cap at 2 million barrels, which Boston Beer will soon surpass. As a consequence, Jim Koch is scrambling to try to change the law:

But help may be on the way: Senator John Kerry, Democrat of Massachusetts, along with Senator Michael D. Crapo, Republican of Idaho, introduced a bill last month that would increase the yearly production limit for small brewers to six million barrels.

The bill would also cut the excise tax rate for small brewers to $3.50 per barrel, from $7, for the first 60,000 barrels produced, and to $16, from $18, for each additional barrel. A similar House bill has several dozen sponsors. The Brewers Association created a distinct definition for craft brewers, said Bob Pease, its chief operating officer, to differentiate small companies from big ones that were also marketing certain beers as craft.

First, the basics. For any brewery producing less than two million barrels, the taxes break out like this: $7 on the first 60,000 barrels, and then $18 a barrel thereafter. Once a brewery hits the 2 million barrel mark, all barrels are taxed at $18. But hey, you gotta draw the line somewhere. Two million barrels is a huge number. For perspective, keep in mind that all the other 1600 craft breweries combined only produce 7 million barrels to Boston Beer's two. By no definition is Boston Beer small.

And by my calculation, Boston Beer would only paying $660,000 a year more under the current rule (out of a tax burden of $36 million) when no longer classed as a craft brewery.

When they hit the 2-million-barrel mark, Boston beer would have to pay the feds $36 million. But if they only brewed 1,999,999 barrels and were still classed as a craft brewery, they'd pay $35.34 million. So it doesn't seem like a catastrophic hit. What it looks like instead is that Boston Beer is trying to use the milestone to roll back taxes in a more substantial fashion. Under the scheme Koch proposes, his tab would decline from $36 million to $31 million when brewing 2m a year. You know the old saying, a million here and a million there, and pretty soon you're talking real money.

I would be in favor of the proposal to lower taxes on craft breweries, but I see no reason to create a law that would give Boston Beer a tax advantage until they grow to three times their present size. The idea is to encourage small craft breweries. Once you hit two million barrels, you ain't small no more. Take it on the chin, Jim, and pay Uncle Sam the full tab. You can afford it.